Confidentiality Agreements

Where companies and individuals wish to reduce access to sensitive information, a confidentiality agreement can be an effective way to protect against unwanted disclosure.

A confidentiality agreement, or non-disclosure agreement (NDA), acts to clarify the permissible uses of confidential information and protect the disclosing party in that its provisions are legally enforceable.

 

What is a confidentiality?

As the name suggests, a confidentiality agreement protects information considered ‘confidential’.

A non-disclosure agreement will define the relevant ‘confidential information’, with this definition needing to be sufficiently broad and non-exhaustive to cover all information that either has been, or may be, disclosed.

When are confidentiality agreements used?

Confidentiality agreements can be effective tools where parties wish to keep certain information confidential and prevent its disclosure to other persons, there being a broad range of situations where this may occur.

For example, in the context of a commercial arrangement – such as the supply of services – parties may need access to certain information and, accordingly, the disclosing party will want certain legal protections.

Confidentiality agreements play a further critical role where information related to an idea or invention is disclosed prior to filing a patent application. In absence of a confidentiality agreement, the idea or invention will be considered to be publicly disclosed, rendering any patent subsequently granted invalid and potentially subject to revocation.

What is included in a confidentiality agreement?

While the contents and purpose of a confidentiality agreement will vary greatly depending on the parties’ wishes, typically the agreement will include provisions relating to the following:

• Scope and identification of confidential information;
• The purpose of disclosing the confidential information;
• The recipient’s obligations in maintaining confidentiality; and
• The period of time the agreement is to be in effect.

In addition to this, for a confidentiality agreement to be valid, it must meet the requirements of a legally binding contract. As such, there must be:

• An offer and acceptance;
• Valid consideration; and
• An intention to create legal relations.

Without these features, an agreement would not be valid and therefore would not be legally enforceable.

 

How are confidentiality agreements structured?

The form of a confidentiality agreement will be dependent on the reason for the disclosure of the confidential information, and the nature of the relationship between the parties.

If both parties are sharing confidential information., a mutual confidentiality agreement may be sufficient. If only one party is providing confidential information, a unilateral arrangement – such as a deed – may be preferable given contractual enforcement issues may arise from a potential lack of consideration on behalf of the recipient.

 

Are there any exceptions to confidentiality agreements?

Some information will be excluded from the protection of a confidentiality agreement by default, including:

• Information already accessible to the public, through no wrongful act or omission of the receiving party;
• Information received from a third party who was entitled to disclose it;
• Information required to be disclosed by virtue of a court order or statutory duty;
• Where information was already in the possession of the recipient as of the date of disclosure (unless otherwise specified).

Parties to an agreement may also choose to exclude categories of possibly confidential information through either inserting exceptions to the definition of ‘confidential information’ into the agreement, or adjusting obligations which apply to confidential information.

 

When is a confidentiality agreement breached?

Whether a confidentiality agreement has been breached will depend on the content of the agreement signed. Generally, however, a recipient of confidential information will breach their obligations where they use confidential information in an unauthorised way to the detriment of the owner of that information.

 

What happens if a confidentiality agreement is breached?

The consequence of a breach of a confidentiality agreement will give rise to a right to common law damages or compensation and, if required, an injunction.

Injunctive relief is common as it prevents parties from beginning or continuing to act in a way which threatens or breaches the confidentiality agreement.

 

What if I don’t have a confidentiality agreement?

If you don’t have a confidentiality agreement, you may be able to rely on an equitable obligation of confidence. The obligation arises where you have shared confidential information in circumstances importing an obligation of confidence.

These circumstances include where the information is shared with the understanding that it should be treated by the confidant on a limited basis, or where the confidant should have realised that – considering all circumstances – the information should be kept confidential.

Breach of the equitable obligation of confidence will occur when there is an unauthorised use or disclosure of information. Unlike contractual obligations of confidence, where loss is the basis of a claim for damages, claiming a breach of equitable obligation does not require proof of damage or loss.

 

In short…

Confidentiality agreements in the form of a contract provide a means for parties to expressly spell out their rights and obligations, giving parties certainty and clarity as to their legitimate expectations.

This article was prepared with the assistance of Clea Philips.